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Family firms bear two types of agency costs, including type I and type II agency problems, in corporate environmental practices: (1) Outside executives at family firms hesitate to engage in environmental strategies, which can lead to drops in profits; (2) Controlling families employ opportunistically environmental management to achieve their interests. We argue that a primary cause for the agency problems lies on ineffective internal corporate governance at family firms, which can cause loss of managerial (or power) balance between outside executives and family executives. Our findings show that family firms with ownership and strategic control (FSC), which family executives and outside executives monitor and constrain each other, can achieve the highest environmental performance. Moreover, external controls, including product market competition and provincial environmental regulations, substitute effective internal control of FSC. The environmental performance premium of FSC is more prevalent when the production market competition is lower. Family firms with ownership, operational, and strategic control (FOSC) can achieve higher environmental performance within a province with more stringent environmental regulations.

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This study investigates the relationship between governors' partisanship and the corporate environmental performance of firms in South Korea. According to political ideology perspective, governors' partisanship closely influences the policy directions and preferences of the provincial administration. Conservative (red) governors tend to induce and encourage competition among firms by deregulating and offering policy benefits to businesses at the provincial level. In response to increased competition in provinces governed by red governors, firms commit to aggressive environmental initiatives as a strategic differentiation tool, in contrast to their behavior in provinces controlled by liberal (blue) governors. Moreover, we examine a contingent role of the provincial Congress. According to the principle of checks and balances, the positive impact of red governors on a firm's environmental performance is stronger when the provincial Congress is controlled by the liberal (blue) party, with its checks and balances on the red governors. This study extends an institutional theory by exploring institutional setting mechanisms at the provincial level.